December 8, 2013 / 7:35 PM / in 4 years

UPDATE 1-Mexican Senate committees debate revamped energy reform

By Alexandra Alper and David Alire Garcia
    MEXICO CITY, Dec 8 (Reuters) - Mexican Senate committees on
Sunday debated an energy bill that would open up the world's
10th-biggest oil producer to private investment by allowing new
types of contracts, marking the industry's most dramatic
overhaul in 75 years.
    The bill, announced by centrist ruling party and opposition
conservative lawmakers on Saturday, would let private firms
partner with ailing state oil firm Pemex via
profit-sharing, risk-sharing and service contracts as well as
licenses in a bid to boost sagging production. 
    The reform, which would keep ownership of crude in state
hands, is at the center of an economic reform drive that
President Enrique Pena Nieto hopes will boost lagging growth in
Latin America's No. 2 economy.
    It is much bolder than a draft proposed by Pena Nieto's
Institutional Revolutionary Party (PRI) in August, which would
have offered profit-sharing contracts and was considered too
tame for attracting private firms.
    Members of the leftist Party of the Democratic Revolution
(PRD) called the bill "national treason" while centrist ruling
Institutional Revolutionary Party (PRI) lawmakers and
conservative opposition figures sang its praises.
    "Today we have bet that we can imagine a Pemex that can go
out and compete in the world," said PRI Senator David Penchyna,
who heads the energy committee.
    Saturday's proposal would allow private investors to drill
for and market the country's oil. 
    "I feel very optimistic about this," said Luis Miguel
Labardini, a partner at Mexico City-based energy consultancy
Marcos y Asociados, who said that the production-sharing
contracts are "very important" for Mexico's vast deepwater oil
    "It seems that the original PRI initiative from Pena Nieto
wasn't written in stone, and that Pena Nieto was able to take
into consideration the reaction of the industry." 
    The reform, however, stops short of full-blown concessions
that oil majors had been hoping for and does not allow companies
to book reserves. It does let them report projected income from
agreed contracts for accounting purposes.
    "Bottom line is that if implemented this should boost
(foreign direct investment) and oil output over the (medium
term)," David Rees, an economist with Capital Economics, said in
an email.  
    The draft marks a major break with tradition in Mexico,
where assets of foreign oil companies were expropriated in 1938
to create Pemex, which is a symbol of national pride. 
    Outside the Senate, hundreds of protesters beat rocks and
spoons against barricades covered with graffiti assailing the
energy reform, as riot police looked on.
    "What are all the police doing?" asks a small child in one
street art drawing. "Protecting thieves," a mother figure
    Lawmakers have said they expect the committees to finish
reviewing the bill by Monday, at which point it would head to
the full Senate and lower house for votes. 
    Pena Nieto hopes to pass the reform before Christmas but
lacks a majority in Congress. 
    He needs the support of conservatives to push the bill
through after the PRD, which opposes opening the oil sector,
pulled out of talks.
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